Analyses of Nepal´s growth data for the last 20 years and the political situation clearly indicate that the economy and politics are intricately linked and economic growth and political stability have a strong positive correlation. [break]
The major political changes and election of majority governments are always followed by robust economic growth. Likewise, political instability and hung parliaments often lead to weak performance by the economy.
Nepal attained high economic growth of 7.9 percent in fiscal year 1993/94, following the election of a majority government under the leadership of the Nepali Congress in the first general election held after Jananadolan-I. During the subsequent three and half years under NC rule, the economy grew by 5.3 percent on average.
However, the mid-term election held in November 1994 produced a hung parliament and the CPN-UML took leadership of a minority government. Nepal´s first communist government, which was headed by Manmohan Adhikari, lasted only nine months. The country then saw four more governments in as many years, led in turn by Sher Bahadur Deuba, Lokendra Bahadur Chand, Surya Bahadur Thapa and the late Girija Prasad Koirala.
During these years of political instability the economy teetered. The average growth rate in those five years was hardly 4 percent and in fiscal year 1997/98 it dipped to 3.3 percent.
The general election held in May 1999 once again produced a majority government led by the Nepali Congress and the economic growth rate bounced back to 6.1 percent in 1999/2000 and remained relatively high at 5.4 percent the following year.
By the end of the 1990s the Maoist insurgency has begun to peak and economic growth again started to falter. The year 2001/02 saw the highest single-year insurgency toll of over 5,000 and not surprisingly the economic growth rate sank to 0.16 percent and the economy was in the doldrums in successive years.
The growth rates remained pessimistic, averaging slightly over 3 percent, even during the king´s 15-month direct rule.
The success of Janaandolan-II that humbled the king´s rule and ended the insurgency provided an immediate boost to the economy. It grew by over 5.8 percent in 2007/08.
As the Janandolan euphoria gradually receded and political uncertainty crept back, the economy started to falter again. In the last three years economic growth rate has slid steadily, culminating in this year´s 3.5 percent.
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